10-QPeriod: Q3 FY2013

Fortinet, Inc. Quarterly Report for Q3 Ended Sep 30, 2013

Filed November 5, 2013For Securities:FTNT

Summary

Fortinet, Inc. reported a 14% year-over-year increase in total revenue for the third quarter of 2013, reaching $154.7 million, driven by strong growth in its Services segment (+20% YoY). Product revenue also saw a healthy increase of 11% YoY. The company maintained a gross margin of 72% for the quarter, though operating income and margin saw a decrease compared to the prior year, primarily due to increased operating expenses. Research and Development and Sales & Marketing expenses rose significantly, reflecting continued investment in product development and sales force expansion. Despite the increased operating expenses, Fortinet generated solid operating cash flow and ended the quarter with a strong cash, cash equivalents, and investments balance of $841.0 million.

Financial Statements
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Key Highlights

  • 1Total revenue for Q3 2013 increased by 14% year-over-year to $154.7 million.
  • 2Services revenue showed robust growth of 20% year-over-year, while Product revenue grew by 11% year-over-year.
  • 3Gross margin remained strong at 72% for the quarter.
  • 4Operating expenses increased by 27% year-over-year, driven by investments in R&D and Sales & Marketing, leading to a lower operating income and margin compared to the previous year.
  • 5Cash, cash equivalents, and investments grew to $841.0 million as of September 30, 2013.
  • 6Deferred revenue increased by $37.0 million from the end of 2012, indicating strong future revenue potential, particularly from subscription and support services.

Frequently Asked Questions

Fortinet reported a 14% increase in total revenue for the third quarter ended September 30, 2013, compared to the same period in 2012, reaching $154.7 million. Product revenue grew by 11%, and Services revenue saw a stronger increase of 20%.

While gross margin remained stable at 72%, operating income decreased by 29% year-over-year due to a 27% increase in operating expenses. This increase was primarily driven by higher investments in Research & Development (up 29%) and Sales & Marketing (up 27%), reflecting the company's strategy to invest in growth.

Fortinet ended the quarter with a strong liquidity position, with $841.0 million in cash, cash equivalents, and investments, an increase from the previous year. Deferred revenue also grew to $400.2 million, up $37.0 million from the end of 2012, signaling strong future revenue recognition from services and subscriptions.

Yes, Fortinet made two acquisitions during the first nine months of 2013: Coyote Point Systems, Inc. on March 21, 2013, for $6.0 million, and certain assets of Xtera Communications, Inc. on September 13, 2013, for $1.8 million. These acquisitions are expected to enhance their load balancing and application delivery solutions.